Zimbabwe’s constrained access to international financing has been worsened by the fact that the country has lost at least 50 foreign correspondent banks since 2008.
A correspondent bank is essentially a bank in one country that is authorised to provide services for another bank or another financial institution located in a foreign country, with typical services including currency exchange, handling business transactions and trade documentation, and money transfers.
Reserve Bank of Zimbabwe governor Dr John Mangudya said the country currently had only three correspondent banks facilitating foreign currency exchange and payments.
“Zimbabwe is a very isolated country. We only have about two or three banks throughout the whole world than can finance us. The rest see Zimbabwe as a high risk country, as a result our access to foreign currency is so minimal,” he said.
“Other countries have access to foreign finance but Zimbabwe cannot access because of isolation and sanctions and that is a fact. Between 2008 and to date, we have lost about 50 corresponding banks as a country because of compliance issues and sanctions.”
Although the RBZ governor did not specify which compliance issues had resulted in some foreign correspondent banks breaking ties with some local banks, a June 2016 International Monetary Fund (IMF) Discussion Note entitled ‘The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action’ highlighted the following:
“Banks are required to comply with economic and trade sanctions, AML/CFT requirements, and anti-bribery and tax evasion regulations applicable in the jurisdiction(s) in which they operate, as well as with those in their home jurisdictions.
Compliance with regulatory requirements in these areas involves the implementation of internal controls, including customer due diligence, transaction monitoring, record keeping, and reporting of suspicious transactions.
The effective implementation of these procedures may be leading banks to terminate CBRs to comply with targeted financial sanctions, or if there is a reason to believe that the respondent bank is involved in money laundering, terrorist financing, or other fraudulent activities.”